Government procurement and firm's market power--Evidence from China

Government procurement in developed countries is becoming increasingly important. Little is known, however, about its role in developing countries, in particularly how it affects firms' market power in environments with imperfect institutional frameworks. This paper examines how large-scale government procurement in China influences firms' market power by using a dataset of Chinese government procurement contracts involving A-share listed companies. We find that firms experience a significant increase in market power after securing government procurement contracts. This surge in market power can be attributed to improvements in productivity, alleviation of financial constraints, and reductions in marketing expenditures. The effect is particularly pronounced for small firms, state-owned enterprises, and firms in industries with lower levels of competition. Overall, our findings provide valuable insights into the impact of government intervention on market dynamics.